A Sharp Recovery, A Deeper Transformation
JM Financial’s stock has surged an impressive 60%, bouncing back from a low of ₹88 on April 7 to ₹141 by June 17. This rally isn’t just a flash of market optimism—it’s a reflection of a fundamental transformation underway. After years of grappling with the fallout from risky wholesale lending, JM Financial is repositioning itself for steady, sustainable growth.
This strategic pivot centers around moving away from balance sheet-heavy wholesale lending towards fee-based capital markets and retail housing finance—segments that promise resilience and profitability with lower risk.
Wholesale Lending Winds Down, Retail Ramps Up
JM Financial’s mortgage lending, once heavily tilted toward wholesale, is undergoing a sweeping recalibration. In FY23, wholesale loans made up 86% of the ₹11,023 crore loan book. But by FY25, this had been pared down to 58%, with the wholesale book shrinking to ₹3,843 crore. Conversely, retail lending—primarily affordable housing—now commands 42% of the portfolio.
This shift follows a turbulent phase where high-risk exposure in real estate and early-stage project finance caused a spike in net NPAs to 3.3% in Q4FY24. Regulatory constraints and poor recoveries forced a re-evaluation, leading to over ₹1,000 crore in impairments. With this clean-up largely behind, net NPAs have improved to 2.3%, though gross NPAs have risen due to legacy issues.
Despite a dip in segment profits to ₹31 crore in FY24 from ₹162 crore the year before, FY25 saw a recovery to ₹85 crore, signaling the stabilizing impact of the clean-up.
Reinventing Lending: A Leaner, Capital-Light Model
The company is now executing a strategy shift towards capital-light, high-return lending. It plans to work with established developers, offering construction finance, equity participation, and syndicated lending—without significantly tying up capital.
This new model expects 12–13% yield on lending and 1–2% in syndication fees, with loan book exposure capped at ₹3,000 crore. JM also plans to recover the ₹1,000 crore impaired amount by FY28, potentially boosting long-term earnings.
Retail Lending: A New Growth Engine
Retail, especially affordable housing, is becoming a key pillar. FY25 saw:
- Revenue growth of 43% (₹368 crore),
- Profit growth of 50% (₹59 crore),
- Loan book expansion by 26% to ₹2,832 crore.
JM plans to grow the retail book to ₹5,000 crore by FY27 and ₹10,000 crore by FY30, expanding its branch network to 275 outlets. Alongside, it projects RoE to rise from 8.5% to 14% and RoA from 2.5% to 3%, which could significantly enhance shareholder returns.
Investment Banking: The Powerhouse Remains
JM Financial’s investment banking arm is still the linchpin, contributing 39.5% of revenue and 71.5% of profits. It topped the charts in QIP deals in FY25, facilitating over ₹80,000 crore in fundraises.
Despite a revenue dip of 11% and profit fall of 17% (due to a high FY24 base), the segment remains resilient, with a strong transaction pipeline for FY26. Wealth AUM also rose 11% to ₹1.1 trillion, with 24% of non-retail AUM now yielding recurring revenues, providing future income stability.
Platform AWS: Scaling Up, Yet to Turn Profitable
The Platform AWS segment—which includes mutual funds, retail and elite wealth—posted 30% AUM growth in FY25 to ₹47,606 crore. Mutual funds saw AUM nearly double to ₹13,419 crore, reflecting traction in non-liquid fund strategies.
However, this vertical remains profit-challenged with a net loss of ₹26 crore, even as revenue rose 24%. JM is investing in expansion across tier 2 and 3 cities, alternate funds, and digital platforms like BlinkX, aiming for breakeven by FY27.
Consolidated Performance: A Reset Year
FY25 was branded a “reset year” by management. Consolidated revenue fell 8% to ₹4,453 crore, and net profit (adjusted) dropped 16.5% to ₹821 crore. However, the company signaled confidence with its highest-ever dividend of ₹2.7 per share and a goal to double it in three years.
RoE declined to 9% from 12%, but the outlook is improving as capital-light businesses scale. With cleanup largely behind and growth levers in place, return metrics are poised for a rebound.
Valuation: Rerating in Motion, But Room to Run
Despite the stock’s sharp recovery, JM Financial still trades at a P/E of 18x, below peers like Edelweiss (26x). As a focused capital markets player, JM is poised for multiple expansion, especially if it sustains earnings growth and expands its wealth and mutual fund verticals.
However, risks remain. Its business is cyclical, and over-reliance on capital market activity could hurt during downturns. Diversification efforts are in motion, but execution will be key.
Conclusion: From Cleanup to Comeback
JM Financial’s transformation story is well underway. A shift towards safer, scalable, and capital-efficient models is restoring investor confidence. If the company can execute effectively—particularly in expanding its retail and wealth platforms—it could not only sustain the recent stock rally but also justify a meaningful valuation rerating.
In essence, JM is no longer just a lender with risky bets. It’s evolving into a diversified capital markets powerhouse, with multiple engines of growth—and a clearer runway ahead.
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Disclaimer
This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.